FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Grimaldi (No. 7) [2009] FCA 768

COMMISSIONER OF TAXATION v PHILLIP GRIMALDI, GARRY BONACCORSO, IFTC BROKING SERVICES LTD and MGG CAPITAL PTY LIMITED AS TRUSTEE FOR WEBTEL MANAGEMENT SUPER FUND

NSD 407 of 2009

GRAHAM J

13 JULY 2009

SYDNEY

THE COURT ORDERS THAT:

1.                  The application for a stay of proceedings for recovery of monies due under the judgment given on 13 July 2009 against the first respondent be dismissed.

2.                  The application for a stay of proceedings for recovery of monies due under the judgment given on 13 July 2009 against the second respondent be dismissed.

3.                  The first respondent pay the costs of his application for a stay.

4.                  The second respondent pay the costs of his application for a stay.

5.                  The proceedings as against the fourth respondent stand over for directions at 9 am on Monday 3 August 2009.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     Earlier today judgments were given for the applicant against each of the first and second respondents in accordance with s 31A of the Federal Court of Australia Act 1976 (Cth).  The judgment against the first respondent was for $36,341,461.73 and the judgment against the second respondent was for $3,552,577.81.  In each case an application has been made for a stay of execution pending the resolution of other issues in relation to tax liability. 

2                     In Deputy Commissioner of Taxation v Warrick (No 2) (2004) 56 ATR 371 (‘Warrick (No 2)’), French J, as his Honour then was, dealt with a generally similar application to those presently made by the first and second respondents.  His Honour ordered, amongst other things, that there be judgment for the Deputy Commissioner of Taxation in that case, in the sum of $1,429,791.03, together with further general interest charges to be assessed.  His Honour stayed the execution of the judgment until 28 January 2005, or such earlier date as may be ordered.  That stay was ordered by His Honour on 13 July 2004; that is to say, he stayed the execution of the judgment for a period of a little over 6 months, subject to an earlier order shortening the period. 

3                     In his reasons for judgment at [105], his Honour set out factors relevant to the question of whether or not a stay of recovery proceedings should be ordered, which he drew from his judgment in Snow v Deputy Commissioner of Taxation (1987) 14 FCR 199.  The relevant factors were as follows:

‘1.        The policy of the ITAA 1936 as reflected in its provisions gives priority to recovery of the revenue against the determination of the taxpayer’s appeal against his assessment.

2.         The power to grant a stay is therefore exercised sparingly and the onus is on the taxpayer to justify it.

3.         The merits of the taxpayer’s appeal constitute a factor to be taken into account in the exercise of the discretion.

4.         Irrespective of the legal merits of the appeal a stay will not usually be granted where the taxpayer is party to a contrivance to avoid his liability to payment of the tax. 

5.         A stay may be granted in the case of abuse of office by the Commissioner or extreme personal hardship to the taxpayer called on to pay.

6.         The mere imposition of the obligation to pay does not constitute hardship.

7.         The existence of a request for reference of an objection for review or appeal is a factor relevant to the exercise of the discretion.’

4                     Earlier today, in giving my reasons for judgment referable to the judgments mentioned earlier [see Commissioner of Taxation v Grimaldi (No. 5) [2009] FCA 765], I referred to passages from the judgment of Brennan J, as his Honour then was, in Deputy Commissioner of Taxation of the Commonwealth of Australia v Richard Walter Proprietary Limited (1995) 183 CLR 168 (‘Richard Walter’) at pages 201-202.  As his Honour observed, as, indeed, did Dixon J, as his Honour then was, in Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 at 207, the coexistence of tax liabilities in two or more taxpayers in respect of the same income is attended with difficulty.  Sometimes the difficulty will be removed by the objection, review and appeal procedures, where the taxpayer will establish the facts in order to establish that the assessment is excessive.

5                     His Honour also observed that the appropriateness of alternative assessment to tax of two taxpayers in respect of the same item of income was recognised in a dictum of the High Court in Deputy Commissioner of Taxation v Moorebank Proprietary Limited (1988) 165 CLR 55 at 67.  The courts, if not the Commissioner, can diminish the difficulty of concurrent assessments by ensuring that there is no double recovery of tax (see per Brennan J in Richard Walter at 201-202). 

6                     This is not a case of the coexistence of tax liabilities in two or more taxpayers in respect of the same income, although it is arguably the case that that would occur if a like judgment was entered against the fourth respondent as has been given against the first respondent.  Sections 14ZZM and 14ZZR of the Taxation Administration Act 1953 (Cth) make it clear that recovery should not be delayed by outstanding decisions on applications for review or appeal.  Section 14ZZM provides: 

‘The fact that a review is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no review were pending.’

A like provision in relation to an appeal to this court is to be found in s 14ZZR. 

7                     In Deputy Federal Commissioner of Taxation v Mackey (1982) 64 FLR 432, the Court of Appeal in New South Wales considered an application for leave to appeal, and if leave was granted, an appeal from an order of the primary judge in that matter (Deputy Federal Commissioner of Taxation v Mackey (1982) 82 ATC 4540) staying proceedings in respect of a claim for the recovery of tax assessed in respect of the year ended 30 June 1978 and interest, together with a small additional sum which constituted a penalty. 

8                     In that case Hutley JA said in his reasons for judgment at 437-438:

‘… there are only two cases where it is clear the court should exercise that [special] discretion.  First, the comparatively rare case where the Commissioner abuses his position … Second, in cases of extreme personal hardship to a taxpayer called upon to pay.  The obligation to pay which has been cast upon him by law is not a hardship of itself and the mitigation of the effect of inflation and the burden of interest is a matter for the legislature, not for the court.’

9                     At this stage no evidence has been tendered in support of the application for a stay to suggest any impecuniosity on the part of either of the first or second respondents.  Whilst their assets may be affected by freezing orders there is no suggestion of extreme personal hardship founded upon the evidence which is presently before the Court.  Neither of the judgment amounts has been paid pursuant to the assessments which have provided the basis for the judgments as given, nor has any part thereof been paid.  In the case of the first respondent reference has been made to a decision of the Commissioner in his role as superannuation regulator that the fund of which the fourth respondent is trustee has been found to be non-compliant in the 2006 income year. 

10                  In such circumstances there is a possibility that the current assessments directed at the fourth respondent will be replaced by further amended assessments calling for the payment of a greater amount of tax.  The suggestion is put by the first respondent that if the fourth respondent is subjected to a liability to tax then it may be inferred that any liability of the first respondent will abate accordingly.  This does not necessarily follow.

11                  It does not seem to me that this is a case where a stay of proceedings in respect of the recovery of the judgment sum should be ordered in relation to the first respondent on the evidence presently before the court having regard to the principles enunciated by French J in Warrick (No 2) and the terms of the relevant sections in the Taxation Administration Act. 

12                  In relation to the second respondent reliance is placed upon the fact that objections were lodged as recently as Friday, 10 July - that is to say, three days ago - which are awaiting objection decisions from the applicant.  The suggestion is that there should be a stay pending the determination of those objections and, if they are brought, applications for review or appeals referrable to objection decisions that may be anticipated in due course.  Warrick (No 2) was an unusual case in that objections had been lodged and a lengthy period of time had elapsed within which the Commissioner had failed to determine the objections.  His Honour seems to have been influenced by the fact that a reasonable amount of time needed to be allowed for the Commissioner to make determinations or be deemed to have made a determination refusing the objections and a period within which a review process could then be instituted.

13                  The second respondent’s case for a stay presently before me does not, in my view, pass the test enunciated by French J in Warrick (No 2).  Reference has also been made to an advice upon which it is said that the second respondent acted.  There is no evidence that the advice was sought by and given to the second respondent nor is there any evidence that the second respondent acted strictly in accordance with the advice in conducting his affairs as he did.  In my opinion, neither basis for a stay advanced by the second respondent has been made good.

Associate:

Dated:         17 July 2009